Taxes in California
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Between graduated income tax levels and high sales tax rates, California residents incur some of the highest costs in the country. That said, the state exempts social security income and estate or inheritance taxes to lessen the burden for senior taxpayers.
Below, we explain various state taxes affecting retirement income and your ability to live affordably in California, such as sales tax, retirement tax, and property taxes. We’ve also provided details about tax credits, exemptions, tax relief programs, and retirement-related tax breaks.
For information regarding taxes in other states, see Retirement Taxes by State.
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California Tax Rates 2023
|State Sales Tax||7.25%|
|Avg State/Local Sales Tax||8.82%|
|Gas Tax||$0.54 per gallon|
|Diesel Tax||$0.41 per gallon|
|Cigarette Tax||$2.87 per pack|
|Effective Tax Rate:||9.63%|
|Social Security Tax||None|
|Medical/Dental Deduction:||Federal Amount|
|Federal Income Tax Deduction:||None|
California State Taxes Explained
California Sales Tax
California’s state sales tax is 7.25%, the highest in the nation. Local district taxes increase the tax owed by a seller, ranging from 0.10% to 1.00%. Given that some areas have multiple district taxes, the sales tax can be confusing. You can look up California sales tax by address to research rates.
California charges an annual vehicle license fee of 0.65% of the purchase price, reduced for the first 11 years of ownership. Groceries, plants or seeds used for food, livestock, and prescription drugs are exempt.
California Property Taxes
The effective property tax rate in California is 0.76%, or $760 for every $100,000 of assessed value. For example, a homeowner will pay $1,371 in taxes on a $505,000 home—the median home value in the state.
California’s Homeowners Exemption reduces the taxable value of a home by $7,000 for qualified taxpayers. The property must be the principal residence for the taxpayer as of January 1 in the tax year.
The Property Tax Postponement Program is available to homeowners age 62 or older, or who are blind or have a disability to defer on their principal residence. Annual income must be less than $35,500, and the taxpayer must have at least 40% equity in their homes. A lien is placed on the property with a 7% interest on the amount outstanding. The lien is paid when the taxpayer sells the property, no longer uses it as a primary residence or dies. The California State Controller offers more information.
California Retirement Taxes
Taxes are not levied on Social Security income, but all other retirement income is subject to state income tax. California taxes 2.5% of early retirement distributions and qualified pensions. Taxes on retired military pay follow federal tax rules.
California Inheritance and Estate Taxes
There is no inheritance tax or estate tax in California.